[BN] the know

Watchdogs critical of ‘gimmicks’ in state budget

Call Cuomo’s plan full of dangerous provisions

The State Legislature approved a budget on time for a third straight year that tapped money from some agencies including the State Insurance Fund to balance spending, including a tax credit. Associated Press

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When Gov. Andrew M. Cuomo touted his 2013-14 state budget in Buffalo and Rochester last week, legislators and budget officials stood close by, leading the cheers for his newly passed $141.3 billion spending plan.

But a growing number of fiscal watchdogs in Washington and Albany are not among the cheerleaders. They are raising serious questions about several budget “gimmicks” the governor omitted from his power point presentation.

Specifically, they point to the $350 tax credit for one million households while maintaining a temporary utility tax, the $750 million swept from an insurance fund for workers’ compensation, pushing into the future current pension costs for localities and more borrowing to pay for the renovations at Ralph Wilson Stadium.

“Reality is going to hit one of these days, and they’re not going to have the money,” Bob Williams, president of a nonpartisan budget watchdog group, told The Buffalo News. “And I don’t know how they’re going to get out of it.”

Added State Comptroller Thomas P. DiNapoli: “This budget does rely on significant nonrecurring actions now and in the future. It also includes several new provisions that extend the state’s reliance on public authority debt to meet the state’s spending needs.”

The most serious reservations about New York’s budget were contained in the report by State Budget Solutions, a nonprofit, nonpartisan Washington-based policy group. It labeled New York an “habitual offender” in using budget sleight of hand to achieve what the state pronounces as balance.

Relying on pension funds and other budget manipulations offers short-term solutions that pose serious danger in the years ahead, said Williams, president of State Budget Solutions.

Williams pointed out that, in the last 10 years, New York has used $21 billion in unfunded payments and pension obligation bonds to balance its budget. In addition, only a handful of states (Indiana, Utah, Oklahoma and South Carolina) are addressing the eventual drastic cuts in federal aid to Medicaid and education programs stemming from Washington’s own fiscal woes.

“It’s going to be ugly,” he predicted. “They can’t continue at current levels.”

Matthew Wing, a spokesman for the governor, dismissed the budget criticisms as “a collection of misleading and false claims.”

“For three years in a row this governor has passed fiscally responsible budgets that held the line on spending with no new borrowing, fees or gimmicks and has done so on time,” Wing said. “This budget represents a continued fiscally prudent approach while also cutting taxes for the middle class to their lowest rate in 60 years and delivering $800 million in tax breaks to businesses.”

Despite that claim, the budget does contain new borrowing and most of the business tax breaks are backloaded into later years.

Cuomo, for his part, described several budget accomplishments during his tour of upstate cities last week.

First and foremost, he said, was the third on-time adoption of a budget, signifying a departure from the previous government dysfunction.

“It was [a symbol] that the whole place didn’t work,” he said in Buffalo Tuesday, referring to several years of late budget approvals.

The governor also praised a 2 percent spending cap and reduction of pension costs as important fiscal accomplishments spearheaded by his administration.

But some state officials and outside watchdog groups are joining the budget criticism, noting for instance that the pension costs for localities are being kicked down the road and may come back to bite the communities if the stock market performs poorly in the years ahead.

While DiNapoli praised the on-time budget adoption and Albany’s willingness to address minimum wage, education and health care funding, he also raised many of the same questions posed by State Budget Solutions.

“New York’s debt burden is among the highest in the nation, making the goals of meeting critical infrastructure needs while remaining within the state’s debt caps more difficult,” DiNapoli said.

Robert Ward, DiNapoli’s deputy comptroller for budget and policy analysis, avoided the word “gimmick” but acknowledged the problem.

“New York State has often used one-shots, temporary taxes, and debt to plug budget gaps and avoid aligning spending with revenues,” he said. “Strides have been made in recent years to turn around these bad habits, but more work remains.”

In recent decades, Albany has produced more than its share of legendary budget manipulations, including sale of portions of the Thruway and Attica Correctional Facility from one state agency to another.

E.J. McMahon, senior fellow at the Manhattan Institute’s Empire Center for New York State Policy, notes such glaring examples may lie in the past, but believes equally dangerous “innovations” are included in the new budget.

He previously pointed to raiding state authority funds to help balance the budget, a $1 billion net increase in borrowing, a $2 billion net tax increase over the next five years, and a pension borrowing plan for localities that he says merely pushes off current costs to future taxpayers.

Cuomo administration officials said its pension plan is working well.

“Pension amortization is a well-established practice that has been in place for many years to add stability to a highly volatile expense category,” an administration source said. “The state has remained current on repayment of amortized costs, and New York continues to have one of the best-funded public pension systems in the nation.

McMahon also pointed out that, while the Cuomo plan includes $350 checks for about 1 million households just before Election Day in October 2014, it’s paid for by “temporary” taxes such as the “millionaire’s tax” and a tax on energy and utility bills.

“So they send $350,” he said. “This is not a cut in taxes. This is a Publisher’s Clearing House fifth place award.”

McMahon called the partial taxpayer funding of a new minimum wage an example of “one bad idea following another. “This is supposed to be a demonstration that New York is back and government is working again?” he said. “Come on.”

New numbers from the Cuomo administration show the minimum wage subsidy will cost $35 million in the 2015 tax year and then average $65 million in each of the following three years.

But the most glaring gimmick, according to McMahon and Williams, is relying this year on $750 million swept from the State Insurance Fund (money designated for workers’ compensation awards) and $1.75 billion over four years to help close the budget gap.

“That’s a gimmick,” McMahon said.

“When you raid the State Insurance Fund to close budget gaps, you’re scraping the bottom of the barrel,” he added. “There’s nowhere else to go.”

The source in the Cuomo administration, though, said the governor “has been successful in unraveling many of the budget gimmicks made by previous administrations.”

“The major rating agencies have praised not only the governor’s reforms but believe the fiscal condition of the state to be stronger than at any point since the crisis,” the source said.

McMahon is also critical of the mechanism funding the state’s portion of remodeling Ralph Wilson Stadium for the Buffalo Bills.

“Every 15 years, the Buffalo Bills need an infusion of capital for Ralph Wilson Stadium. You can set your watch by it,” he said. “But by borrowing, it only adds to the collective mortgage burden on 19 million New Yorkers – just so the Buffalo Bills can build a new team store to sell their gear.”

McMahon said Cuomo avoided New York’s penchant for gimmickry in his first year but seems to be embracing old habits now, criticizing the “shear, awful creativity of it.”

He harbors little optimism Albany’s ways will change soon.

“If you have no compunction over not having a consistent policy to make New York a good place to do business,” he said, “you can do damn near anything.”